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A Falling Tide Grounds all Boats…

I wanted to emphasize a point I made in an earlier post with regards to index fund investing and macro trends.  I view long only indexing as a subset of macro investing.  That is, I think that all long only index fund investors are making an implicit bullish macro forecast because the positive performance of their underlying portfolio will rely enormously on a positive macro trend.

To emphasize the importance of this point I wanted to highlight the dismal performance of some of the world’s large stocks markets in the last 10-20 years.  I doubt the index fund providers of the world are hauling in customers in these markets:



Now, none of this is an intent to bad mouth index fund investing.  After all, I am a macro guy and I think indexing is part of macro so I don’t bite the hand that feeds me!   So I am a huge advocate of indexing.  I am an even bigger fan of cutting frictions out where you can.  But I also think it’s important to build a process for portfolio construction and that process requires a specific understanding of what you’re doing when you design that process.  Going into a long only index fund approach based on the misconception that you’re “not forecasting” the future is a little naive in my view and misconstrues what that process is based on in the first place.

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